ACC 202 Exam 3 (Final)

Carlos, Inc. requires a minimum rate of return of 10% on its average operating assets. The housewares department currently has average operating assets of $200,000 and a net operating income of $24,000. The department's residual income is

$4000 (24000 -[200000 * 10%)

Disadvantages of decentralization

-lower-level managers may make decisions without seeing the "big picture" -may be a lack of coordination among autonomous managers -lower-level manager's objectives may not be those of the organization -may be difficult to spread innovative ideas in the organization

which of the following ratios are part of the ROI formula?

-net operating income/sales-sales/average operating assets

a manufacturing cycle efficiency of 40% means that:

-value-added activities are being performed 40% of the time. -the typical order is being worked on 40% of the time.

valid criticisms of evaluating performance based on return on investment (ROI) include managers may: 1. be put in charge of a business segment that includes committed costs over which a manager has no control 2. take actions that increase ROI in short-run at the expense of long-term performance 3. reject investment opportunities that are profitable for the company but have a negative impact on a manager's ROI 4. affect ROI by increasing sales or decreasing operating expenses for their division

1, 2, & 3.

Macey, Inc.'s Investment center had average operating assets of $350,000, revenues of $1,050,000 and net operating income of $70,000. Return on investment is:

20%. Return on investment= Net operating income/ average operating assets= $70,000/$350,000= 20%

Marcos Co. is considering a project that will increase residual income by $15,000. The project has a 12% return on investment (ROI) which exceeds the company's 10% required rate of return. Marcos Co. currently has an overall 15% ROI in the department where this project would be implemented. Should Marcos do the project? (Check all that apply.)

>>The project should be accepted by the company because it increases overall residual income. >>The department manager may not want to accept the project because it will lower the overall ROI for the department.

True or false: When considering ROI, excessive operating expenses is always a greater concern to managers than excessive operating assets.

False

Return on investment =

Net Operating Income / Average Operating Assets

which of the following evaluation measures are used for investment center managers only- not for cost or profit center managers? ROI Actual profits compared to budgeted profits Residual income Standard cost variances

ROI and residual income

an integrated set of performance measures that are derived from the company's strategy is a(n)

balanced scorecard.

The time between when an order is placed and when it is delivered is known as the

delivery cycle time

Choose the groups of performance measures typically used in the balanced scorecard approach. Financial, customer related, learning and growth, quality scores, and safety records

financial, customer related, learning and growth

Time spent ensuring that the product is not defective is referred to as ______ time.

inspection

ROI is a method used to evaluate:

investment centers but not cost or profit centers

managers of cost centers are expected to

minimize costs, while providing an acceptable level of service

A MCE of less than 1 indicates

non-value time is added

The net operating income that an investment center earns above the minimum required return on its average operating assets is its _______ income.

residual

The net operating income than an investment center earns above the minimum required return on its average operating assets is:

residual income

In decentralized organizations, decision-making authority is ______.

spread throughout the organization

The balanced scorecard should be consistent with the company's _____, so that people will not find themselves working at cross-purposes.

strategy

Managers of cost centers are evaluated on

their ability to control costs in their responsibility center

The period from which a product begins production as raw materials and ends as a finished product is known as ------ time or manufacturing cycle time

throughput